1. Field of the Invention
This invention relates to a system and method for analyzing document images to determine whether negotiable documents including, but not limited to checks, money orders, or giros (check-like negotiable documents commonly used in European countries), presented to be cashed, proffered as payments, or deposited to accounts in financial institutions are fully negotiable and valid.
2. Background
Increasingly, business entities are replacing the exchange of negotiable documents in paper form with the exchange of images of those documents and the delivery of a document image itself constitutes an event that triggers a value exchange. For instance, banks in the United States are in the process of moving to image exchange for checks. In a check image exchange, the receipt of an image of a check drawn from an account at a bank will cause the amount of value identified in the check to be debited from the account. An important topic in the exchange of any negotiable document is how to make sure that all participants in the exchange are able to determine the validity of the negotiable document. A valid negotiable document requires that all of the information required for negotiability is present and readable, the document itself is not a counterfeit and is not forged or altered. All participants in a reliable image exchange environment need to have the capability to determine the validity of a negotiable document by examining only the image of the document since the paper copy of the document itself is not available for examination.
In the banking industry, a check image is deemed as a “usable” image if all the information required for negotiability is both present and readable from the image, and the process for determining whether the information is present and readable is commonly known as “image usability” analysis.
A recurring issue with the use of image exchange by the banking industry is check fraud. Individuals, businesses and financial institutions lose over $1 billion annually due to check fraud. Common methods of perpetrating check fraud include:                making counterfeit checks (the check stock for the fraudulent check is not the valid check stock for the account);        forging checks (the check writer is not one of the people authorized to write checks on the account); and        altering legitimate checks (some writing on the check has been changed in a way not authorized by a person authorized to write checks on the account)        
In attempting to limit check fraud losses and for other check processing purposes, businesses and financial institutions have developed a complex network of business relationships and organizations with specialized roles as well as a supporting technology infrastructure. These businesses and financial institutions include:                account holding financial institutions providing checking accounts of various types;        depository financial institutions accepting deposits consisting of checks drawn on their own accounts as well as accounts provided by other financial institutions;        retailers and merchants accepting checks as payment for products or services;        check guarantee companies offering check guarantee services to businesses that accept checks as a payment method by charging a fee. The check guarantee company reimburses the check accepting business if the financial institution on which it is drawn does not pay a guaranteed check;        check cashing service companies offering cash for checks and money orders for a fee; and        account information distribution companies distributing the information on accounts (such as account open/closed status, stop payment information on individual checks, etc) that financial institutions are allowed to share with third parties without violating privacy laws and regulations.        
FIG. 1 depicts conventional methods of handling fraudulent checks deposited by bank customers. A bank customer 154 deposits a check 156 drawn on an account holding financial institution 166 into an account at a depository financial institution 158. The depository financial institution 158 sends the check 156 to a check clearing organization 162 to determine the identity of the account holding financial institution 166. The check clearing organization 162 sends the check 156 to the account holding financial institution 166. If the account holding financial institution 166 determines that the check 156 is fraudulent, it returns the check 156 to the check clearing organization 162. The check clearing organization 162 then returns the check 156 to the depository financial institution 158. The depository financial institution 158 then reverses the deposit of check 156 and returns check 156 to the bank customer 154.
As another example, FIG. 2 depicts conventional methods of handling fraudulent checks used to make payments to retailers or merchants. A retail customer 174 presents a check 156 to a retailer or merchant 178. The retailer or merchant 178 generates a check guarantee request 208 for check 156 and submits the request to a check guarantee company 212. Upon receipt of the request 208, the check guarantee company 212 examines its internal files and account status information 200 provided by account information distribution companies 202. Account information distribution companies 202 obtain account status information 200 from account holding financial institutions 166. If no adverse information is found, the check guarantee company 212 gives an affirmative check guarantee decision 210 for the check 156 to the retailer or merchant 178. An affirmative check guarantee decision 210 obligates the check guarantee company 212 to reimburse the retailer or merchant 178 in the event that check 156 turns out to be fraudulent. Assured by the affirmative check guarantee decision 210, the retailer or merchant 178 deposits the check 156 in a depository financial institution 158.
If the check 156 is drawn on a different financial institution, depository financial institution 158 sends the check 156 to a check clearing organization 162. The check clearing organization 162 determines the identity of the account holding financial institution 166 and sends the check 156 to the account holding financial institution 166. If the account holding financial institution 166 determines that the check 156 is fraudulent, the account holding financial institution 166 returns the check 156 to the check clearing organization 162. The check clearing organization 162 returns the check 156 to the depository financial institution 158. The depository financial institution 158 then reverses the deposit of check 156 and returns check 156 to the retailer or merchant 178. If this ever happens, the retailer or merchant 178 may seek reimbursement from the check guarantee company 212 based on the agreement it has with the check guarantee company 212.
Despite this complex network of businesses and supporting technology, check fraud still occurs for various reasons. For example, financial institutions receiving, as deposits, checks drawn on other financial institutions or businesses accepting checks as payments have few methods of determining whether the checks are legitimate checks (not counterfeits) and whether the checks were written by an authorized person (not forged or altered). In addition, when a fraud check is presented to a check cashing service or used for merchandise payment, current fraud detection methods are not very helpful since the fraud is often detected after the value exchange has already taken place.
Although the account holding financial institution has the information to validate checks drawn on its accounts, it currently has no appropriate way to make such information available to other financial institutions or businesses that need to validate checks drawn on the account holding financial institution. Even if the account holding institution had a way to make such information available, it is precluded from doing so because such information is often protected from being released to third parties by privacy laws and regulations.
Even if there is no violation of privacy laws and regulations, the transmission of such information in its current form as being held and disclosed by the account holding financial institution may expose the financial institution and the account holder to greater fraud risk. For example, the interception of such information could enable a fraud perpetrator to make counterfeit and/or forged checks with a higher likelihood of being accepted as legitimate ones.
In addition, significant time is required to transmit checks or check images from the point of presentment at a retailer or at a depository financial institution to the account holding financial institution. As a result, there is often a delay of several days between the time that fraud is perpetrated and the time that the account holding financial institution becomes aware of the fraudulent activity.
Accordingly, there is a strong need to develop an efficient system and method for determining whether checks accepted as payments or deposits are valid without violating privacy laws and regulations or exposing any private information to potential fraud perpetrators.